Maxima–from idea to implementation

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What gives Maxima the X-factor that makes it one of the greatest success stories of the region and the biggest retail chain of the Baltics? Shrewd business tactics coupled with market intuition and pure muscle, for a start. The Insider takes a look at the company and the people responsible for this Baltic retail giant.Maxima Grupe is one of the Baltic region’s biggest success stories. It has grown from small beginnings in Vilnius with a handful of stores to employing tens of thousands of people, working in different industries and spanning four countries.The name Maxima is one of the most ubiquitous brands in the Baltics, being the region’s most popular supermarket chain. Its brands encompass a huge range of products and aim to attract customers of all ages. Think of the stores as the complete opposite of specialty shops, their aim being convenience above all else–to offer as much as they can cram under one roof. The Maxima slogan “Everything thought through” is perhaps the best way to describe the company’s business plan, which starts from the initial conception of new stores and leads to the construction and finally to the stocking and running of the supermarkets.It has been said that the company’s owners are highly talented businesspeople with “their noses turned to the side, so they can catch the smell of money on the wind,” as one retail sector analyst colorfully put it. They often sniff out opportunities before they are discovered by competitors and this intuition is what has made them one of Lithuania’s biggest companies, certainly in retail.Despite their dominating influence, however, they have not been immune to the credit crisis. The company recently announced that it would not pay out its usual Christmas bonuses to staff because of the rapidly changing economic climate.

Dynamic history

In its early humble beginnings from 1992 when it had three poky stores filled with drearily similar products, the company was originally known as Vilniaus Prekyba, which translates roughly as Vilnius Trade. Realizing they had to come up with a more catchy name, its directors unveiled three brands in the late nineties that relected the increasingly varied sizes of its stores: Minima, Media and Maxima. The first two of these were eventually ditched in favor of a universal Maxima brand, employing an “X” system for its store sizes: X for the smallest, XXX for the biggest. Vilniaus Prekyba is the parent company of Maxima Grupe, today the biggest food and goods retailer in the Baltics by a country mile, and other subsidiaries and brands including the EuroVaistine drugstore chain, the logistics company Maxima Logistika, Eurocom mobile communications, Baltservis construction and equipment servicing, the Ermita˛as furniture and DIY retailers, the Can Can pizza chain… the list goes on and on. It is owned and run by ten shareholders. One of the first private companies to emerge after Lithuania gained independence from the Soviet Union in 1991, VP has evolved over the years to own 435 stores in four countries in 2008. The year 2001 saw the start of a new era when the company went international, moving into Baltic neighbors Latvia and Estonia. Since then, the group has opened 126 and 51 supermarkets there, respectively. In 2005, Maxima Grupe entered Bulgaria where it now has 28 stores. Concurrent with an expanding network of stores, MG’s turnover has grown exponentially. Its turnover in 2007 was reported at 8 trillion litas (EUR 2.3 trillion), with 2008’s projected turnover at 10.8 trillion litas–a 32.5 percent increase. Not surprisingly, Maxima Grupe is also becoming one of the biggest employers in the region. The company now has an army of around 26,000 staff, almost seven times as many heads as it employed eight years ago. In December 2008, the group promoted one of its high-flying directors, Mindaugas Bagdonavicius, to take over as general director, replacing Gintaras Marcinkevicius, who has taken the company through its meteoric rise. Bagdonavicius inherits the title at a difficult time (see interview).

Gluteus maximus

Maxima Grupe has found a lot of its strength in the expansion of its brand. The pure might of the company gives it the best possible purchasing power and optimum penetration to its customers. Over the last three years, the company has opened a staggering 74 new stores in the four countries it is present in, doubling the number of stores in Bulgaria in the process. The company says that it is forever trying to expand in order to get ever closer to clients, so that as many people as possible can buy what they need with a short walk or a brief journey by car. Bagdonavicius told The Insider that Maxima’s plans for what is widely expected to be a coming recession are to continue to expand into new places to increase market penetration. The company has tentative plans to drastically increase the number of stores in the Baltic region, with major expansion anticipated in Estonia. Currently, Maxima controls about 10 percent of the retail market in Estonia, but sees an opportunity to snatch 30 percent by 2011. In its home market of Lithuania, the group currently commands a 36 percent market share and wants to increase this to 40 percent by 2011. And it aims to build its 21 percent share in Latvia up to 30 percent in the same time period. A report by Business Monitor International (BMI) explains that up to now the conditions have been perfect for the company to flourish, but it expects a downturn in the near future. “Lithuania represents one of the more attractive markets for food and drink retailers in the Central and Eastern European market. In BMI’s revised Business Environment Ranking table for the food industry in CEE, Lithuania is placed third, after Hungary and Slovenia. “In the past few years, the growth in the country’s mass grocery retail sector has exceeded most of its counterparts in the region, which has boosted value and volume increase of food and drink consumption. However, a broader economic slowdown will act as a brakeon this situation over the coming years,” the report says. This diversification is part of a strategy for survival during the coming recession.“Lithuania’s mass grocery retail sector and, in fact, retail as a whole, is dominated by Maxima, with Rimi Baltic in second place. The country’s domestic players are increasingly aiming to expand abroad in order to avoid the pitfalls of the concentration of the local market,” the report continues. The three main supermarket types under the Maxima banner are Maxima X, ranging between 300 and 1,000 sq m, Maxima XX between 1,000 and 3,000 sq m, and Maxima XXX, which are larger than 3,000 sq m. The super-sized Maxima XXX branches are the flagships of the brand. Recently, however, Vilniaus Prekyba made a shrewd business move by selling its huge Kaunas Akropolis shopping mall to a German company, West Invest Interselect. Despite being counter to expansion, the 60,000 sq m Akropolis complex went under the hammer for a tidy profit in August–just as real estate prices in Lithuania were starting to plummet.

SUCCESSES AND FAILURES

Maxima has managed to capitalize on a relatively small population that does not lend itself to significant purchasing power when compared to markets like Germany or France, which have significantly bigger populations. This has been a bitter-sweet reality for Maxima Grupe. “The small size of the Baltic countries’ populations represents a major drawback to companies thinking of entering the country, despite the fact that they is viewed as being among Central and Eastern Europe’s more liberalized and dynamic economies,” the Business Monitor International report explains. “Furthermore, Lithuania’s mass grocery retail and food retail markets are considered the most consolidated in the Baltic region, which has already stopped some international retailers from entering the country. “Nevertheless, rising disposable incomes–although Lithuanians remain among the poorest citizens in the European Union–will represent one of the key drivers of the growth of food volume and value sales over the forecast period. A strong economy and relatively stable political climate will allow key companies operating in the market to make longer-term plans, which may include takeovers of smaller food processing firms.” In the meantime, BMI does not anticipate major developments in the country’s food sector, judging by the relatively quiet recent months. Arguably, the report goes on, Maxima has been one of the most successful companies in the Baltic region because it is so willing to flex and change as market pressures demand. “With a view to ensuring the consistent planning of its activities,” the group’s mission statement reads, “once a year Maxima Grupe reviews and updates its corporate strategic goals taking into account the current situation, customers’ and shareholders’ expectations, retail trade development factors, and global trends.” Perhaps Maxima’s biggest challenge has been in establishing the Estonian brand of Maxima. Giedrius Juozapavicius, the company’s brand communications director, says that the Maxima brand’s recognition in each country has brought new barriers to overcome. “In every country we meet challenges and relevant problems. These are local and sufficiently specific in particular countries and are also related to the historical stages of our development,” he explains. Many experts comment that the rolling out of the Maxima brand in Estonia was performed in the opposite way to how it should have been done. Instead of grabbing attention with flagship Maxima XXX malls and then rolling out smaller and more convenient neighborhood stores, the group initially placed smaller stores in poorer areas. This led consumers to associate the brand with low quality and poor choice.